Philippe Jabre, the hedge fund manager who was fined £750,000 for alleged market abuse in February, launched his appeal against the Financial Services Authority yesterday, claiming that the regulator had acted beyond its jurisdiction by punishing him for events that took place off UK shores.
Speaking at a decisions hearing of the Financial Services & Markets Tribunal, Charles Flint QC, representing Mr Jabre, contended that the FSA did not have any right to punish his client as the alleged abusive transactions took place on the Tokyo stock market, not in London.
Mr Flint also argued that the FSA's decision to ban Mr Jabre from acting as a regulated individual in the UK was an "abuse of process".
Although the regulator contended the alleged abuse fell within its jurisdiction, because Mr Jabre and his company, GLG, were based in London, the tribunal eventually agreed to Mr Flint's request for a preliminary hearing to sort out the issues over jurisdiction.
The FSA alleges Mr Jabre committed market abuse three years ago, when he took a series of short positions in a Japanese company, Sumitomo Mitsui Financial Group (SMFG), shortly after being allegedly given some inside information about the firm by a Goldman Sachs salesman.
Although the salesman warned Mr Jabre that he should not trade in the securities after their conversation, a series of trades were made in the subsequent days.
The FSA's Regulatory Decisions Committee not only said it was fining Mr Jabre £750,000 - the biggest ever fine handed down to an individual by the regulator - but also fined his company the same amount for being "viciously liable" for its failure to monitor Mr Jabre.
Mr Jabre argues that he already held several positions in SMFG, and was told by the salesman it would be okay to "keep his existing trading pattern". The FSA contends Mr Jabre's subsequent transactions were not part of any trading pattern.
Barbara Dohmann QC, representing the FSA, told yesterday's hearing: "The short sales were based on confidential information Mr Jabre had received from [the Goldman banker] and amounted to market abuse and ... a failure to act with due care, skill and diligence and to observe proper standards of market conduct."
There will be a preliminary hearing later this year to decide whether the FSA is outside of its jurisdiction in the case. If Mr Jabre's preliminary appeal fails, a full hearing will then be scheduled, probably in 2007.
Earlier this month, the FSA lost a key tribunal case against Paul "The Plumber" Davidson, who overturned the regulator's attempt to land him with a £750,000 fine for market abuse.